B is corrent. The 20,000 stock appreciation rights (SAR) each entitle the holder to receive cash equal to the excess of the market price of the stock on the exercise date over the market price on the grant date ($30). Since these SAR are payment for past services and are exercisable immediately, there is no required service period. Therefore, the expense computed at 12/31/Y3 does not have to be allocated to more than one period. At 12/31/Y3, compensation expense is measured based on the excess of the 12/31/Y3 market price ($45) over the predetermined price ($30), resulting in compensation expense of $300,000 [20,000 ($45 – $30)]. Note that if Dean was required to work 3 years before the SAR could be exercised, the expense would be allocated over the 3 years of required service ($300,000 × 1/3 = $100,000).
A is incorrect. The 20,000 stock appreciation rights (SAR) each entitle the holder to receive cash equal to the excess of the market price of the stock on the exercise date over the market price on the grant date ($30). Since these SAR are payment for past services and are exercisable immediately, there is no required service period. Therefore, the expense computed at 12/31/Y3 does not have to be allocated to more than one period. At 12/31/Y3, compensation expense is measured based on the excess of the 12/31/Y3 market price ($45) over the predetermined price ($30), resulting in compensation expense of $300,000 [20,000 ($45 – $30)]. Note that if Dean was required to work 3 years before the SAR could be exercised, the expense would be allocated over the 3 years of required service ($300,000 × 1/3 = $100,000).
C is incorrect because the liability and compensation expense are adjusted for changes in market value.
D is incorrect. The 20,000 stock appreciation rights (SAR) each entitle the holder to receive cash equal to the excess of the market price of the stock on the exercise date over the market price on the grant date ($30). Since these SAR are payment for past services and are exercisable immediately, there is no required service period. Therefore, the expense computed at 12/31/Y3 does not have to be allocated to more than one period. At 12/31/Y3, compensation expense is measured based on the excess of the 12/31/Y3 market price ($45) over the predetermined price ($30), resulting in compensation expense of $300,000 [20,000 ($45 – $30)]. Note that if Dean was required to work 3 years before the SAR could be exercised, the expense would be allocated over the 3 years of required service ($300,000 × 1/3 = $100,000).
|
